BHN - Budgeting

BUILD YOUR SKILLS - Budgeting
1. What is a budget and what does budgeting mean?
2. List several reasons for maintaining a budget.
3. Explain the difference between fixed expenses and variable (flexible) expenses.
4. Identify each of the following as a fixed expense or a variable expense.

a) rent b) groceries c) property taxes d) mortgage payments e) recreation
5. Mazyn’s budget for the month of April is shown below.

INCOME Budget Actual Difference
Job $3200 $3200 $0
Other $0 $140 +$140
Total monthly income $3200 $3340 +$140
EXPENSES Budget Actual Difference

Fixed expenses
Savings $200 $200 $0
Rent $800 $800 $0
Car insurance $210 $210 $0
Car payment $430 $430 $0
Cell phone service $75 $75 $0
Home internet service $90 $90 $0
Video/music streaming services $40 $40 $0
Piano lessons $100 $100 $0
Variable expenses
Food and dining Out $300 $334 +$34
Utilities $260 $252 –$8
Transportation
Gas $200 $218 +$18
Parking $0 $10 +$10
Maintenance/repairs $0 $0 $0
Clothing $100 $88 –$12
Entertainment $100 $120 +$20
Personal items $30 $25 –$5
Household items $50 $42 –$8
Miscellaneous $0 $85 +$85
Total monthly expenses $2985 $3119 +$134
a) In what areas did Mazyn spend more than he planned? Less than he planned?
b) Suppose Mazyn’s car required a $350 repair in April. If all other expenses were paid as
shown above, what is the most that he could put into savings at the end of the month?
c) After moving, Mazyn’s rent becomes $1200/month. How can he modify his budget to
support this change?
334 7.1 – Budget

6. Explain the difference between gross income and net income.
7. Explain the difference between discretionary expenses and non-discretionary expenses.
8. David and Katherine have one child. Their combined gross income is $152 800/year. Katherine’s
net pay is $1040/week and David’s is $2405 bi-weekly (every two weeks). They wish to create a
monthly budget based on the following expenses.
Mortgage: $900 bi-weekly Transportation: $225/week
Taxes: $2900/year Cell phone service: $160/month
Insurance: $355/month Home internet service: $95/month
Loan payments: $390/month Clothing: $3000/year
Car payment: $450/month Savings: $250 bi-weekly
Childcare: $375/week Entertainment: $300/month
Food: $200/week Gifts: $1400/year
Utilities: $340/month Miscellaneous: $600/month
a) Calculate Katherine and David’s combined net income per year.
b) Copy and complete the monthly INCOME Budget
budget shown on the right using Katherine’s job
the information above (round all David’s job
values to the nearest dollar). Total monthly income
c) How much more per month could EXPENSES Budget

Katherine and David afford to put Mortgage
towards paying off their mortgage Taxes
faster? Insurance
Loan payments
d) With a partner, discuss how the
Car payment
monthly budget could be
Childcare
modified for each of the
Food
following cases.
Utilities
i) The couple has another child. Transportation
Cell phone service
ii) The car is paid off.
Home internet service
iii) David or Katherine becomes Clothing
unemployed. Savings
Entertainment
Gifts
9. Research and compare the possible Miscellaneous
monthly expenses for each of the Total monthly expenses
following currently living in your area.
• family of four • postsecondary student • single working adult • single parent of one child
10. Create a current monthly budget for yourself and predict how it will change over the next
decade.
7.1 – Budget 335

CHECK YOUR UNDERSTANDING
1. A budget is essentially a spending plan based on income and expenses. It’s an estimate of how
much money will be earned and spent during a set period of time. Budgeting is the act of creating
and maintaining a budget.
2. Answers may vary. For example,

• determining how much money is available to spend
• deciding how money will be spent
• planning for future financial goals
• learning to live on less than the available income
• avoiding financial trouble
3. Fixed expenses are costs that have a constant value and are largely predictable, whereas the
ANSWERS
values of variable (flexible) expenses change regularly and can be affected by day-to-day
events/choices.
4. a) fixed expense b) variable expense c) fixed expense d) fixed expense

e) variable expense
5. a) Mazyn spent more than he planned on food and dining out, gas, parking, entertainment, and
miscellaneous items. He spent less than planned on utilities, clothing, personal items and
household items.
b) $71
c) Answers may vary. For example, he could reduce his budget for nonessential items, such as
entertainment. He could also consider downgrading his cell phone and home internet plans
and/or possibly reduce the frequency of his piano lessons until more income becomes
available.
6. Gross income is the amount earned before taxes, benefits and other payroll deductions are
withheld. Net income is the actual take-home pay.
7. Discretionary expenses are nonessential expenses. Individuals or households can survive without
discretionary expenses. Non-discretionary expenses, on the other hand, are mandatory costs and
are needed for survival.
336 7.1 – Budget

8. a) $116 610
b) INCOME Budget
Katherine’s job $4507
David’s job $5211
Total monthly income $9718
EXPENSES Budget
Mortgage $1950
Taxes $242
Insurance $355
Loan payments $390
Car payment $450
Childcare $1625
Food $867
Utilities $340
Transportation $975
Cell phone service $160
Home internet service $95
Clothing $250
Savings $542
Entertainment $300
Gifts $117
ANSWERS
Miscellaneous $600
Total monthly expenses $9258
c) $460
d) Answers will vary.
9. Answers will vary.
10. Answers will vary.
7.1 – Budget 337

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BUILD YOUR SKILLS - Budgeting

1. What is a budget and what does budgeting mean?

2. List several reasons for maintaining a budget.

4. Identify each of the following as a fixed expense or a variable expense.

5. Mazyn’s budget for the month of April is shown below.

EXPENSES Budget Actual Difference

334 7.1 – Budget

7. Explain the difference between discretionary expenses and non-discretionary expenses.

c) How much more per month could EXPENSES Budget

7.1 – Budget 335

2. Answers may vary. For example,

4. a) fixed expense b) variable expense c) fixed expense d) fixed expense

336 7.1 – Budget

9. Answers will vary.

10. Answers will vary.

7.1 – Budget 337

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